Oct 9, 2008

World - South Korea;Against the Tide

One government at least still plans to sell its assets rather than buy more

PRIVATISATION was to be the hallmark of the administration of Lee Myung-bak, who became South Korea’s president in February. This month he will at last unveil his plans to whittle down the number of state-owned companies to about 250 from 319. The government wants to sell more than 35 companies outright or in stages, abolish others and merge another 20. Mr Lee had hoped to sell even more state assets. But consumers’ fears about price rises forced him to set aside the sale of electricity, gas and water companies.

Global markets are in turmoil, the Seoul stockmarket is plunging and Mr Lee’s approval ratings are not much above 25%. But his office, backed by an opinion poll in August, claims a majority of voters support the plan. South Korea’s three biggest newspapers also all back his agenda of “small government and big market”.

The passage of more than 40 privatisation bills through South Korea’s parliament will be rocky. The president’s own Grand National Party (GNP) holds a comfortable majority in the National Assembly. But it struggled to pass a supplementary budget last month designed to stimulate the economy. Assemblymen have to heed their constituents, many of whom fear Mr Lee’s economic agenda favours the wealthy at the expense of the poor. A bill that raises the threshold above which homes attract property taxes to 900m won ($770,000) is making its way through parliament. It has been criticised as a sop to Mr Lee’s supporters in Seoul’s wealthy southern districts.

South Korea’s public-sector unions are likely to be bitter opponents of Mr Lee’s privatisation programme. Lee Wang-hwi, a professor of political science at Ajou University, near Seoul, points out that South Korea’s trade unions are unusual in that those representing public-sector and financial workers are more aggressive than the manufacturing unions.

Plans to sell state-owned banks such as Korea Development Bank (KDB) have come under increased scrutiny thanks to Wall Street’s financial crisis and KDB’s efforts to acquire Lehman Brothers just before it went bankrupt. KDB had hoped to make itself a Wall Street powerhouse by buying a leading investment bank at a fire-sale price. But in an embarrassing revelation, the finance minister, Kang Man-soo, told parliament he hadn’t been told of KDB’s plans to buy Lehman.

Cho Yoon-sun, a GNP spokeswoman, says Wall Street’s meltdown should give the president pause in his privatisation plans. The sale of KDB and other firms taken over in the country’s financial crisis of 1997-98 will probably be stretched out over the remainder of Mr Lee’s term. But if his asset-selling drive is to gather momentum, he will have to win over his own party, which might demand a degree of political skill that he has yet to exhibit.